1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended Commission File November 27, 1999 Number 1-8504 UNIFIRST CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2103460 (State of Incorporation) (IRS Employer ID Number) 68 Jonspin Road Wilmington, Massachusetts 01887 (Address of principal executive offices) Registrant's telephone number: (978) 658-8888 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of outstanding shares of the registrant's Common Stock and Class B Common Stock as of January 5, 2000 were 9,408,134 and 10,255,744 respectively.
2 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) <TABLE> <CAPTION> November 27, August 28, November 28, 1999 1999* 1998 ------------ ---------- ------------ <S> <C> <C> <C> Assets Current assets: Cash $ 2,101,000 $ 2,912,000 $ 7,385,000 Receivables 57,986,000 51,786,000 45,634,000 Inventories 22,055,000 27,194,000 23,804,000 Rental merchandise in service 57,688,000 55,631,000 47,361,000 Prepaid expenses 205,000 199,000 202,000 ------------- ------------- ------------- Total current assets 140,035,000 137,722,000 124,386,000 ------------- ------------- ------------- Property and equipment: Land, buildings and leasehold improvements 180,736,000 174,979,000 154,667,000 Machinery and equipment 196,343,000 190,722,000 168,316,000 Motor vehicles 49,686,000 49,396,000 41,887,000 ------------- ------------- ------------- 426,765,000 415,097,000 364,870,000 Less - accumulated depreciation 179,480,000 172,912,000 152,118,000 ------------- ------------- ------------- 247,285,000 242,185,000 212,752,000 ------------- ------------- ------------- Other assets 88,677,000 85,720,000 56,220,000 ------------- ------------- ------------- $ 475,997,000 $ 465,627,000 $ 393,358,000 ============= ============= ============= Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term obligations $ 1,619,000 $ 1,911,000 $ 1,140,000 Notes payable 2,394,000 2,331,000 2,509,000 Accounts payable 18,277,000 17,659,000 17,918,000 Accrued liabilities 49,547,000 46,659,000 47,964,000 Accrued and deferred income taxes 10,205,000 7,754,000 4,961,000 ------------- ------------- ------------- Total current liabilities 82,042,000 76,314,000 74,492,000 ------------- ------------- ------------- Long-term obligations, net of current maturities 114,172,000 111,194,000 44,602,000 Deferred income taxes 20,931,000 20,686,000 18,743,000 ------------- ------------- ------------- Shareholders' equity: Preferred stock, $1.00 par value; 2,000,000 shares authorized; none issued -- -- -- Common stock, $.10 par value; 30,000,000 shares authorized; issued 10,499,634 shares 1,050,000 1,050,000 1,022,000 Class B Common stock, $.10 par value; 20,000,000 shares authorized; issued and outstanding 10,255,744 shares 1,026,000 1,026,000 1,029,000 Treasury stock, 1,091,500 shares, at cost (20,049,000) (16,583,000) -- Capital surplus 12,438,000 12,438,000 7,078,000 Retained earnings 266,250,000 261,450,000 248,807,000 Accumulated other comprehensive income (1,863,000) (1,948,000) (2,415,000) ------------- ------------- ------------- Total shareholders' equity 258,852,000 257,433,000 255,521,000 ------------- ------------- ------------- $ 475,997,000 $ 465,627,000 $ 393,358,000 ============= ============= ============= </TABLE> * Condensed from audited financial statements The accompanying notes are an integral part of these condensed consolidated financial statements.
3 FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) <TABLE> <CAPTION> Thirteen Thirteen weeks ended weeks ended November 27, November 28, 1999 1998 ------------- ------------- <S> <C> <C> Revenues $ 131,790,000 $ 116,335,000 ------------- ------------- Costs and expenses: Operating costs 81,839,000 66,488,000 Selling and administrative expenses 31,023,000 26,989,000 Depreciation and amortization 8,531,000 7,258,000 ------------- ------------- 121,393,000 100,735,000 ------------- ------------- Income from operations 10,397,000 15,600,000 ------------- ------------- Interest expense (income): Interest expense 1,709,000 712,000 Interest income (119,000) (58,000) ------------- ------------- 1,590,000 654,000 ------------- ------------- Income before income taxes 8,807,000 14,946,000 Provision for income taxes 3,347,000 5,530,000 ------------- ------------- Net income $ 5,460,000 $ 9,416,000 ============= ============= Weighted average number of shares outstanding - basic & diluted 19,689,592 20,510,608 ============= ============= Net income per share - basic & diluted $ 0.28 $ 0.46 ============= ============= </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
4 FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <TABLE> <CAPTION> Thirteen Thirteen weeks ended weeks ended November 27, November 28, 1999 1998 ------------ ------------ <S> <C> <C> Cash flows from operating activities: Net Income $ 5,460,000 $ 9,416,000 Adjustments, net of acquisitions: Depreciation 6,933,000 6,055,000 Amortization of intangible assets 1,598,000 1,203,000 Receivables (6,157,000) (3,366,000) Inventories 5,327,000 331,000 Rental merchandise in service (1,894,000) (3,884,000) Prepaid expenses (6,000) (14,000) Accounts payable 507,000 3,923,000 Accrued liabilities 2,878,000 2,857,000 Accrued and deferred income taxes 2,434,000 2,402,000 Deferred income taxes 234,000 387,000 ------------ ------------ Net cash provided by operating activities 17,314,000 19,310,000 ------------ ------------ Cash flows from investing activities: Acquisition of businesses, net of cash acquired (533,000) (3,654,000) Capital expenditures (11,875,000) (7,400,000) Other assets, net (3,246,000) (4,231,000) ------------ ------------ Net cash used in investing activities (15,654,000) (15,285,000) ------------ ------------ Cash flows from financing activities: Increase in debt 3,090,000 40,000 Reduction of debt (1,435,000) (1,449,000) Repurchase of common stock (3,466,000) -- Cash dividends (660,000) (561,000) ------------ ------------ Net cash used in financing activities (2,471,000) (1,970,000) ------------ ------------ Net increase (decrease) in cash (811,000) 2,055,000 Cash at beginning of period 2,912,000 5,330,000 ------------ ------------ Cash at end of period $ 2,101,000 $ 7,385,000 ============ ============ Supplemental disclosure of cash flow information: Interest paid $ 1,642,000 $ 694,000 Income taxes paid 651,000 2,712,000 ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
5 FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED NOVEMBER 27, 1999 1. These condensed consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the information furnished reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary to a fair statement of results for the interim period. It is suggested that these condensed consolidated financial statements should be read in conjunction with the financial statements and the notes, thereto, included in the Company's latest annual report on Form 10-K. Results for an interim period are not indicative of any future interim periods or for an entire fiscal year. 2. From time to time, the Company is subject to legal proceedings and claims arising from the conduct of its business operations, including legal proceedings and claims relating to personal injury, customer contract, employment and environmental matters. In the opinion of management, such proceedings and claims are not likely to result in losses which would have a material adverse effect upon the financial position or results of operations of the Company. 3. In the first quarter of fiscal 1999, The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS 130 established new rules for the reporting and display of comprehensive income and its components. The adoption of this SFAS 130 had no impact on the Company's net income or shareholders' equity, but it requires the Company's foreign currency translation adjustment, which prior to adoption was reported separately in shareholders' equity, to be included in accumulated other comprehensive income. The components of comprehensive income for the thirteen week periods ended November 27, 1999 and November 28, 1998 were as follows: <TABLE> <CAPTION> Thirteen Thirteen weeks ended weeks ended November 27, November 28, 1999 1998 ------------ ------------ <S> <C> <C> Net income $5,460,000 $9,416,000 Other comprehensive income: Foreign currency translation adjustments 85,000 292,000 ---------- ---------- Comprehensive income $5,545,000 $9,708,000 ========== ========== </TABLE>
6 FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE THIRTEEN WEEKS ENDED NOVEMBER 27, 1999 RESULTS OF OPERATIONS THIRTEEN WEEKS OF FISCAL 2000 COMPARED WITH THIRTEEN WEEKS OF FISCAL 1999 Revenues. Fiscal 2000 first quarter revenues increased $15.5 million or 13.3% to $131.8 million as compared with $116.3 million for the fiscal 1999 first quarter. This increase can be attributed to growth from existing operations (6.7%), acquisitions (5.6%) and price increases (1.0%). Growth from existing operations was primarily from the conventional uniform rental business (5.9%), and from the nuclear garment services business (0.8%). The increase in revenues from acquisitions resulted from seven acquisitions made in fiscal 1999 (one in Wisconsin and one in Mississippi, both in October 1998, one in New England and North Carolina in December 1998, one in Nevada in January 1999, another in Wisconsin in April 1999, and one in Massachusetts and one in Missouri, both in July 1999) and one acquisition in fiscal 2000 (in Maine in September 1999). Operating Costs. Operating costs increased to $81.8 million for the first quarter of fiscal 2000 as compared with $66.5 million for the same period of fiscal 1999 as a result of costs associated with increased revenues. As a percentage of revenues, operating costs increased to 62.1% from 57.2% for these periods. In July 1998, the Company changed the estimated service lives and related amortization periods for rental merchandise in service, from primarily 12 months to primarily 15 months, which is more consistent with their respective useful lives (although the Company believes its principal publicly-held competitors amortize their garments over an average of 15 to 18 months). This resulted in a benefit of approximately 3% of revenues in the fiscal 1999 first quarter compared to this year's first quarter, and is the primary reason for the increase in operating costs as a percentage of revenues in the fiscal 2000 first quarter. The Company also continues to assimilate last year's acquisitions and deal with ongoing increases in labor, fuel and other operating costs. Selling and Administrative Expenses. The Company's selling and administrative expenses increased to $31.0 million, or 23.5% of revenues, for the first quarter of fiscal 2000 as compared with $27.0 million, or 23.2% of revenues, for the same period in fiscal 1999. This increase was due primarily to increased costs for professional sales training, national, catalog and internet sales to support the Company's current and future revenue growth. The company also incurred increased costs to upgrade its Information Systems. Depreciation and Amortization. The Company's depreciation and amortization expense increased to $8.5 million, or 6.5% of revenues, for the first quarter of fiscal 2000 as compared with $7.3 million, or 6.2% of revenues, for the same period in fiscal 1999. This increase was due primarily to increased amortization costs due to acquisitions and increased capital expenditures for information systems hardware and software to upgrade certain Company-wide systems.
7 Net Interest Expense. Net interest expense was $1.6 million, or 1.2% of revenues, for the first quarter of fiscal 2000 as compared with $0.7 million, or 0.6% of revenues, for the same period in fiscal 1999. The increase is primarily attributable to higher debt levels in the fiscal 2000 quarter. Income Taxes. The Company's effective income tax rate was 38.0% for the first quarter of fiscal 2000 and 37.0% for the same period in fiscal 1999. The increase is due primarily to higher state income taxes. LIQUIDITY AND CAPITAL RESOURCES Shareholders' equity at November 27, 1999 was $258.9 million, or 69.1% of total capitalization. During the thirteen weeks ended November 27, 1999 net cash provided by operating activities ($17.3 million) was primarily used for capital expenditures ($11.9 million), repurchase of common stock ($3.5 million) and debt repayment ($1.4 million). The Company had $2.1 million in cash and $12.4 million available on its $120 million unsecured line of credit with three banks as of November 27, 1999. This agreement contains, among other things, a provision regarding net worth, which the Company was out of compliance with as of November 27, 1999. The Company has discussed this with the banks and expects to receive a waiver. The Company believes its generated cash from operations and its borrowing capacity will adequately cover its foreseeable capital requirements. SEASONALITY Historically, the Company's revenues and operating results have varied from quarter to quarter and are expected to continue to fluctuate in the future. These fluctuations have been due to a number of factors, including: general economic conditions in the Company's markets; the timing of acquisitions and of commencing start-up operations and related costs; the effectiveness of integrating acquired businesses and start-up operations; the timing of nuclear plant outages; capital expenditures; seasonal rental and purchasing patterns of the Company's customers; and price changes in response to competitive factors. In addition, the Company's operating results historically have been lower during the second and fourth fiscal quarters than during the other quarters of the fiscal year. The operating results for any historical quarter are not necessarily indicative of the results to be expected for an entire fiscal year or any other interim periods. EFFECTS OF INFLATION Inflation has had the effect of increasing the reported amounts of the Company's revenues and costs. The Company uses the last-in, first-out (LIFO) method to value a significant portion of inventories. This method tends to reduce the amount of income due to inflation included in the Company's results of operations. The Company believes that, through increases in its prices and productivity improvements, it has been able to recover increases in costs and expenses attributable to inflation. SAFE HARBOR FOR FORWARD LOOKING STATEMENTS Forward looking statements contained in this quarterly report are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and are highly dependent upon a variety of important factors that could cause actual results to differ materially from those reflected in such forward looking statements. Such factors include those indicated in the section entitled "Risk Factors" in the Company's Prospectus, dated March 18, 1998, as well as the risks and uncertainties relating to the centralization of certain of the Company's operations at its Owensboro, KY distribution facility, the Company's handling of the Year 2000 issue, and the Company's ability to control manufacturing and operating costs. When used in this quarterly report, the words "intend," "anticipate," "believe," "estimate," and "expect" and similar expressions as they relate to the Company are included to identify such forward looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK For information regarding quantitative and qualitative disclosures about market risk, see the Company's discussion under Item 7A of its Annual Report on Form 10-K for the fiscal year ended August 28, 1999. Between August 28, 1999 and November 27, 1999, there were no material changes in the Company's market risk.
8 PART II - OTHER INFORMATION FORM 10-Q UNIFIRST CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: (27) Financial Data Schedule (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized. UNIFIRST CORPORATION /s/ RONALD D. CROATTI --------------------- Ronald D. Croatti President and Chief Executive Officer Date: January 11, 2000 /s/ JOHN B. BARTLETT -------------------- John B. Bartlett Senior Vice President and Chief Financial Officer